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The new meaning of full and frank disclosure

Kit Klarenberg
Written By:
Kit Klarenberg

Divorcees Alison Sharland and Varsha Gohil both discovered their ex-husbands had deliberately misled them and the courts over the true extent of their wealth during proceedings.

Mrs Sharland agreed to what she believed was an equal division of the family assets. She took a larger proportion of the capital assets and a 30% share of the net sale proceeds of the family business.

After proceedings ended, she learnt her ex-husband had misled her and the court over the value of the business and his plans for a future IPO flotation, elevating the value of the business from between £31m and £47m as had been estimated, to $1bn on flotation.

Mrs Gohil accepted a modest settlement, despite suspicions her husband had concealed his true wealth.

When her ex-husband was jailed for fraud and money laundering offences, evidence came to light confirming her suspicions to be correct.

Believing they had received less than they would have done had proper disclosure been provided, both separately appealed to the UK Supreme Court to have their cases reheard. The Court has now ruled in their favour.

So what does this landmark decision mean for divorcees old and new?

The ruling

For Fiona Turner and Emma Collins, partners at law firm Weightmans, the Supreme Court decision was unsurprising.

“Its decision emphasises the fundamental principle parties have a duty to provide full and frank financial disclosure to one another and the court in financial remedy proceedings,” they say.

However, the judgment provides legal teams, and the public, with much-needed clarification on the process to be followed in divorce proceedings, evidential rules and burdens of proof.

“The Court has made clear the duty is for each party involved to fully disclose all their assets, capital and wealth from all sources,” Rachel Daniells, partner at Ashfords, notes.

“Both parties should scrutinise the transactions of the other through disclosure of statements, investment documents, property transactions and ownership of assets – including pensions. Time needs to be taken to ensure all information has been provided, and all source materials are disclosed.”

Turner and Collins envisage business owners finding themselves in a difficult position in future, should they sell their business (whole, or in-part) and receive a better than expected return.

“It may be more settlements are now going to be struck at the outset whereby the other party secures a percentage of the net proceeds of sale from a business, rather than ‘off-setting’ the value of a business against other capital assets,” they say.

“Business owners, entrepreneurs and those with venture capital start-up businesses, with potential for significantly divergent opinions on values, particularly in the context of potential flotations, takeovers or other commercially sensitive activities, will particularly need to seek expert advice.”

Daniells likewise believes the case gives rise to new challenges for those who own their own businesses, and manage their individual wealth.

“Transactions can be complicated and involve arrangements put into effect for tax efficient reasons that require far more extensive enquiry and methodical unpicking to obtain a clear understanding,” she says.

“Expert assistance may be needed, particularly where investments or company trading are complex.”

Floodgates open?

Some commentators have predicted the opening of floodgates as a result of the ruling, with old cases reopening and disgruntled divorcees seeking reappraisals of their settlements. While it is true there is no limitation period for making financial claims in divorce cases (a precept reinforced by another high profile ruling in March), Turner and Collins are sceptical.

“The reality for most people is the costs and risks of bringing proceedings to overturn an order because of information subsequently uncovered, coupled with the prospect of subsequently re-litigating the case, may outweigh any potential benefit,” they warn.

In any event, financial dishonesty and complexity in divorce may not be common phenomena.

“Most settlements involve relatively uncomplicated finances where money and assets can be followed and verified,” Daniells concludes.

“Nonetheless these cases come as a timely reminder to all – concealing your financial position will not be tolerated.”

While Sharland and Gohil have been successful in their appeals, their battles are not over; they must now seek rehearings in new trials. Whether either will receive a different outcome this time round remains to be seen.